‘Shared services shockers still fresh in collective memories’

The leaders of Australia’s oldest and newest shared services centres took on the very real perceptions that past implementations haven’t always lived up to the promise of contestability and greater innovation, at a seminar in Canberra last month.

Delaine Wilson

Delaine Wilson, director of the federal government’s one-year-old shared services centre, suggested the Commonwealth centre’s role may change as demand and competitors arrive.

“The world is full of overnight success stories and sadly, shared services isn’t going to be one of them,” Wilson told the seminar, hosted by the Institute for Public Administration Australia’s ACT Branch.

“We need to be realistic about the timelines and agree what success looks like as shared services evolves. What we think success looks like today shouldn’t be what we accept in the future. The biggest challenge — the absolute biggest challenge — within the APS is to build an appetite for the cultural shift. Customers will need to move away from an ownership mindset and understand what it takes to be a good business partner and customer.”

Wilson was joined by Jill Divorty, head of the ACT government’s eight-year-old shared services centre, who said her organisation had always been in a constant state of change and was undergoing a revolutionary shift from service provider to business partner.

“You can never get comfortable in a shared services centre, and that’s because change is normal and there is no steady state at all in shared services,” she said.

KPMG’s Sheila Pringle, an international public sector transformation expert, agreed with Divorty and Wilson that to be a success, shared services needs long-term leadership commitment, which is far from assured in government.

“It’s a long game,” Pringle said. “It could take [up to] 8 years to become efficient, effective and establish those true business partnerships that your customers are looking for. But in government, you could have had a change of leadership five, six, seven times in that timeframe, so you always have to go back and sell what you’re trying to do to those senior levels.”

KMPG’s public sector director told the cautionary tale of a UK departmental shared services centre, which had decisions un-made and reviewed by eight consecutive leaders, ensuring little progress towards higher efficiency, but followed with another that had a happier ending:

“When a [UK] Department of Finance home secretary left, they were halfway through their shared services journey and he recognised the risk of that new person coming in and changing the direction of travel, so as part of the handover he locked that new person in to delivering that shared services journey.”

All three agreed that contestability should not be seen as simply finding more opportunities for outsourcing, and as such fits together well with expansion of shared services centres, which can act as both a provider in areas where it can compete strongly, and a service broker in others.

“I think [contestability is] more about introducing an approach which challenges you to think about what is your core business, which challenges you think about engaging with the market in more of a partnership approach to see how else you could deliver those services in a more efficient and effective way,” said Pringle.

“It introduces more innovative ideas, it introduces new capabilities to your organisations to better deliver services to your customers, and it offers alternative delivery models, not just outsourcing.”

Charting the course for the federal SSC

Wilson began her presentation with a question:

“Despite some shared services shockers that are still fresh in collective memories, why is it that this topic called shared services is the buzz term around town?”

The push towards smaller government was one reason, she said. “And if you think about those reforms, they’re in response to constrained budget and an increasingly dynamic and complex policy environment. The reforms are designed to cut waste and duplication, streamline delivery models, reduce operating costs [and] make government more efficient and business-like.”

Within the APS, the big portfolios were already beginning to consolidate various administrative processes when the new federal SSC came into being. This fragmented approach threatens the all-important economies of scale that are the whole point of shared services, according to Wilson.

[pullquote] “Not only does the shared services centre face internal competition within the APS … we’re also going to face competition from an external provider.” [/pullquote]

Treasury is currently developing its own shared services offering for the many small agencies under the federal umbrella and with five large portfolios running their own shared services shows — the Tax Office, Attorney-General’s Department, Defence, Foreign Affairs and Trade, and Human Services — two service hubs is enough, she told the IPAA seminar.

At the same time, the new contestability framework is exposing more internal government services to competition:

“So not only does the shared services centre face internal competition within the APS … we’re also going to face competition from an external provider, or many. To do this the key will be to develop a commercial mindset, and fast. One of the biggest challenges we face is cultural change. And the competencies required to deliver to a commercial level are vastly different to those competencies required to deliver simply consolidated service.”

The first big challenge is building a common technology platform. The reasoning is clear and work has already begun to reduce the number of enterprise resource planning (ERP) systems in play, currently about 200. Savings over seven years are expected to be somewhere between $233 million and $465 million, depending on how it all pans out.

“The stats are certainly impressive … but I think anyone in the room will know getting agreement to migrate to a common platform, let alone the migration of the system, won’t be an easy task,” added Wilson.

She later acknowledged the APS is already “heavily invested in SAP” but said a lower cost ERP solution needed to found, which would also “remove barriers” for smaller entities, while “major departments could share a single SAP ERP platform and a single set of processes to lower ERP operating and transactional costs.”

The next challenge is achieving the economies of scale that are at the heart of the concept of shared services. System consolidation helps but is only part of the story, Wilson explained:

“The challenge is getting that in a non-mandated environment, which is currently what we have in the APS. To reach the required scale in the current environment, senior leaders currently need to opt in, and this can be challenging for a variety of reasons. Loss of span of control, fear of decrement in service and so on.”

[pullquote] “Critical will be the development of a non-core and core product offering, and this ensures that departments pay for what they use, but they are able to tap in to a wider offering … ” [/pullquote]

There are two ways to get the agencies on board: an actively enforced central mandate, and governance arrangements that foster “a strong spirit of collaboration” through the kind of business partnership model pursued by Divorty in the ACT.

Wilson favours a hybrid solution, but suggested mandatory use of shared services could be successful if coupled with “a timetabled migration date to an agreed end-state, where entities either become providers of service or purchasers in a contestable market comprising of internal and external providers.”

“Based on practice elsewhere either of these models have risks, and the risks need to be identified and mitigated before you embark on either of them,” she said. “However at the end of the day, the UK model does suggest that the greater benefits are derived when you have a level of mandating.”

Noting it would be “brave and foolhardy” to predict how far the latest shared services push will go, Wilson said new governance models and partnerships with the private sector with a “commercial mindset” would have to be part of the conversation, along with regular benchmarking and the aforementioned ERP consolidation.

The two shared service hubs would start from a hub-and-spoke service delivery model and develop “a network solution, which could include such centres of excellence as legal and communications providing services to each other and to agencies at large.

“I think critical will be the development of a non-core and core product offering, and this ensures that departments pay for what they use, but they are able to tap in to a wider offering than just simply the basics.”

The challenge of developing a commercial mindset in the public sector “can’t be understated” in Wilson’s view, and of course in 2015 that means the kind of commercial thinking inspired by innovative, agile start-ups:

“To build success there is often failure … and then rebuilding on that failure and taking the lessons learnt. This requires an appetite to risk, and failure in order to reap the rewards. And that’s certainly not something that the APS had been strong on, in the past … I think the APS has the appetite and the intestinal fortitude to go the difference, but I guess at the end of the day, only time’s going to tell.”

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